Contract: Termination

Question 1

What are the primary ways a contract can be discharged?

Answer 1

By performance, by agreement, by breach, by frustration, and by expiry

Question 2

What does ‘discharge by expiry’ mean?

Answer 2

The contract ends automatically when a stipulated term (e.g., a fixed date or specific event) occurs as specified in the contract

Question 3

What does ‘discharge by performance’ require?

Answer 3

Complete performance of each party’s primary obligations exactly as promised, under the entire obligations rule

Question 4

What is the entire obligations rule?

Answer 4

A party must perform its obligations in full before claiming any payment; partial performance generally does not entitle to partial payment

Question 5

What is a contract deemed to have been discharged by performance?

Answer 5

When all the promisor’s obligations are fully and exactly performed, the contract is discharged

Question 6

Why did Cutter v Powell illustrate the entire obligations rule?

Answer 6

Cutter’s part-voyage service was insufficient for payment; performance had to be complete before payment was due

Question 7

Name four exceptions to the entire obligations rule.

Answer 7

Acceptance of partial performance, substantial performance, divisible obligations, and wrongful prevention of performance

Question 8

What is quantum meruit and when is it awarded?

Answer 8

An award of reasonable payment for the value of work done when partial performance is accepted or when performance is prevented by another party

Question 9

When will a party recover on quantum meruit for partial performance?

Answer 9

Only if the innocent party voluntarily accepts partial performance and chooses to compensate for its value

Question 10

How is ‘substantial performance’ defined?

Answer 10

Performance that, while not complete, leaves only minor defects not going to the root of the contract, entitling payment minus cost of remedying defects

Question 11

Which case held that redecorating with minor defects was substantial performance?

Answer 11

Hoenig v Isaacs—job nearly complete, defects were minor, so defendant paid contract price minus repair costs

Question 12

Which case held that installing a malfunctioning heating system was not substantial performance?

Answer 12

Bolton v Mahadeva—the heating system failed fundamentally, so no payment under the contract; only a remedy if defects were cured

Question 13

When are contractual obligations ‘divisible’?

Answer 13

When the contract is divided into separate parts (e.g., monthly salary under an employment contract), each part is treated as a distinct obligation

Question 14

What is wrongful prevention of performance?

Answer 14

When one party’s default makes it impossible for the other to finish performance, the innocent party can sue for breach or recover on quantum meruit

Question 15

Which case established wrongful prevention of performance?

Answer 15

Planche v Colburn—builder prevented from completing work by client’s actions, so could recover for value of work done

Question 16

What constitutes a valid ‘tender of performance’?

Answer 16

An unconditional offer to perform according to contract terms which the other party refuses, discharging the tendering party from liability for non-performance

Question 17

In Sumpter v Hedges, why did the builder not recover for partial performance?

Answer 17

The builder left work on site, but the owner was compelled to complete it; there was no voluntary acceptance of partial performance

Question 18

What is ‘discharge by agreement’?

Answer 18

Termination of the original contract by mutual consent, either through a subsequent binding contract (accord and satisfaction) or by operation of a term in the contract

Question 19

What are ‘accord and satisfaction’?

Answer 19

Accord: agreement to release the other from obligations; Satisfaction: consideration given for that release; together they discharge the original contract

Question 20

Why is consideration needed for discharge by agreement?

Answer 20

Mutual release requires new consideration so that each party is bound by a new contract terminating the old one; without consideration, a deed must be used

Question 21

When can a contract be discharged by deed?

Answer 21

When one party performs fully and the other party gratuitously releases obligations in a formal deed, avoiding the need for fresh consideration

Question 22

What are ‘condition precedent’ and ‘condition subsequent’ terms for discharge by operation of contract?

Answer 22

Condition precedent prevents obligations from arising until a specified event; condition subsequent terminates existing obligations upon a specified event

Question 23

Give an example of a condition precedent.

Answer 23

A contract that becomes binding only if shareholders approve a high-value deal; until approval, no obligations arise

Question 24

Give an example of a condition subsequent.

Answer 24

A contract containing a clause allowing either party to terminate upon notice or upon a specified breach, discharging remaining obligations

Question 25

What is a 'repudiatory breach'?

Answer 25

A breach of a term that is a condition or an innominate term treated as a condition, entitling the innocent party to terminate the contract

Question 26

What is an 'anticipatory breach'?

Answer 26

When one party, before performance is due, indicates by words or conduct an intention not to perform its obligations, giving rise to a right to terminate immediately

Question 27

Which case first recognized anticipatory breach?

Answer 27

Hochster v De la Tour—delivery of notice renouncing performance before due date allowed immediate termination

Question 28

What happens when a contract is terminated for repudiatory breach?

Answer 28

All future primary obligations are discharged, and the innocent party may claim damages for both the breach and loss of the entire contract

Question 29

What are the risks of wrongfully terminating for repudiatory breach?

Answer 29

If the court finds the breach non-repudiatory (e.g., a breach of warranty), the terminating party becomes the repudiator and owes damages

Question 30

What choice does the innocent party have after repudiatory breach?

Answer 30

They may either terminate the contract, discharging future obligations, or affirm it, insisting on performance and claiming damages only for the breach

Question 31

What are the consequences of affirming a contract after repudiatory breach?

Answer 31

The contract remains in force; the innocent party retains the right to claim contractual payments and damages for the breach but cannot terminate later

Question 32

What limitation applies to affirming a contract in response to repudiatory breach?

Answer 32

Affirmation requires clear and unequivocal conduct continuing performance; if the innocent party needs the other’s cooperation to perform, they cannot affirm

Question 33

What is the 'right of election' after repudiatory breach?

Answer 33

The innocent party must elect (notify the defaulting party) whether to terminate or affirm within a reasonable time before losing the right to terminate

Question 34

What constitutes self-induced breach preventing affirmation?

Answer 34

If the breaching party’s own wrongful acts create the breach, the innocent party cannot affirm or must take immediate steps to avoid acquiescence

Question 35

What is 'discharge by frustration'?

Answer 35

Automatic termination of a contract when a supervening event, without the fault of either party, makes performance impossible, illegal, or radically different from what was agreed

Question 36

According to Davis Contractors v Fareham, what qualifies as frustration?

Answer 36

An event beyond the parties’ control that renders performance fundamentally different from what was contracted, not merely more onerous

Question 37

Name three categories of frustrating events.

Answer 37

Impossibility of performance, supervening illegality, and frustration of common purpose

Question 38

Which case held that destruction of a music hall frustrated a performance contract?

Answer 38

Taylor v Caldwell—destruction of the subject matter made performance impossible

Question 39

Which case held that a ship’s requisition frustrated a charterparty?

Answer 39

Bank Line v Arthur Capel & Co—ship requisition removed availability needed for performance

Question 40

When does supervening illegality frustrate a contract?

Answer 40

When a change in law or government intervention makes performance illegal (e.g., Fibrosa v Fairbairn—machinery contract frustrated by enemy occupation)

Question 41

What is 'frustration of common purpose'?

Answer 41

When the shared basis of the contract no longer exists, even though performance is physically possible (e.g., Krell v Henry—hire of room to view coronation cancelled)

Question 42

What limitation prevents frustration for merely increased expense?

Answer 42

A contract is not frustrated if it simply becomes more expensive or burdensome; it must be radically different from what was agreed

Question 43

When is frustration self-induced?

Answer 43

If a party’s own actions or choices cause the supervening event, they cannot claim frustration (e.g., ‘Super Servant Two’—chartering out an alternative barge led to self-induced impossibility)

Question 44

How does foreseeability affect frustration claims?

Answer 44

If the parties could reasonably have anticipated the event and allocated risk in the contract, frustration is unlikely to apply

Question 45

Can a force majeure clause override frustration?

Answer 45

Yes—an express force majeure provision allocating risk for specific events prevents the common law remedy of frustration

Question 46

What immediate effect does frustration have on future obligations?

Answer 46

All future obligations are automatically discharged at common law; neither party must perform them

Question 47

What does the Law Reform (Frustrated Contracts) Act 1943 do?

Answer 47

It governs pre-frustration obligations: money paid can be recovered, money due ceases to be payable, and payee may retain expenses or recover a just sum for any non-monetary benefit received

Question 48

Under s1(2) LRFA 1943, what can a court order regarding money paid?

Answer 48

The payer can recover money paid before frustration; the payee can retain a sum for expenses incurred in performing, at the court’s discretion, capped at actual expenses or amount paid

Question 49

When does s1(3) LRFA 1943 apply?

Answer 49

When the payee received a non-monetary benefit before frustration; the court may award the payee a just sum not exceeding the value of the benefit

Question 50

Which case illustrated the valuation of benefit under s1(3)?

Answer 50

BP Exploration v Hunt—only the end value of the oil produced (which was expropriated) counted, not BP’s entire expenditure

Question 51

How does the court determine a 'just sum' for expenses under s1(2)?

Answer 51

By exercising broad discretion ‘having regard to all the circumstances’, seeking to mitigate harshness without rigid rules

Question 52

Can a party recover expenses exceeding amounts paid under s1(2)?

Answer 52

No—retention or recovery is capped by the actual expenses incurred or the sums paid or payable before frustration